The search, sometimes financial, for happiness

October 23, 2020

American Satirist H.L. Mencken famously defined Puritanism as "the haunting fear that someone, somewhere, may be happy."

Former University of Toronto Business School Dean Roger Martin remarked recently to Bloomberg:

"Aristotle said that if a person sets out in life to be happy, they’re unlikely to end up happy. But if a person who sets out to live a good life — by which he meant a life of servitude to their society and their fellow citizens — they’re likely to end up happy."

I've been watching the 20-year growth of books about achieving happiness, and also watching societal happiness fall over that same period (maybe the books were poorly written and made people unhappy?).

Aristotle has a good point. You probably don't get to be Aristotle without a few good points in your lifetime quiver, but this one is particularly relevant today. The fatigue of our situation is setting in and people are stressed on many levels. We're looking for happiness.

How does this relate to finance? A stronger financial position increases happiness for most people up to a point. Backing away from the financial ledge, having some cushion, being able to make some mistakes - money adds value. I lost a car tire once. It was dumb but I did it. But it wasn't devastating. I was happier because I had the money to cover it. The tire guy was happy too.

Surprisingly (or not?), this trend can reverse at a certain point. Even stronger financial positions can lead to less happiness. Market drops can add anxiety. Friends might treat you differently. Loss of direction may set in. CNBC consumes your attention.

Nobel Laureate Daniel Kahneman and economist Angus Deaton studied this issue, and ten years ago found that $75k salary-wise was the breakpoint where increased income stopped adding significant happiness (note income, not wealth). A summary of their work is here.

Dan Cunningham

^{1 American happiness is declining significantly. Washington Post.
2 It was not connected to the car at the time. Here in Vermont we have to switch to snow tires.}